Research Discussion Papers, Bank of Finland
No 11/2008:
Efficiency and costs of payments: some new evidence from Finland
Kari Takala ()
and Matti Viren ()
Abstract: This paper deals with optimal payment systems. The issue
boils down to how large are the costs of different payment media, which can
be interpreted as a question of the efficiency of the means of payment.
However, there are other qualifications related to the choice of payment
media. Here, at least three issues can be distinguished. First is the
question of optimal payment medium for each individual payment (size,
location, EFTPOS etc.). This choice is not independent of the individual
characteristics of the payer and payee. Secondly, there is the question of
cost effectiveness of payments for different institutions and sectors. The
final issue concerns the social optimum for each payment medium. These
issues have been particularly controversial in the case of cash, which is
still the dominant payment medium in most euro countries. Part of the
controversy arises from the fact that the costs and benefits of different
payment media affect different market participants in quite different ways,
so that a possible social optimum might not correspond eg to the optima for
different firms. The paper contains a short review of calculation methods
and empirical results for a sample of countries. It also provides new
evidence from Finland, which is to an extent one of the front-runners in
payment technology and institutional design in payment systems. This shows
up in relatively low overall costs of payments. Our estimate of total costs
of payment media is 0.3 per cent of GDP, which is very low by international
standards.
Keywords: payment media; cash; payment systems; costs of payments; (follow links to similar papers)
JEL-Codes: E42; G21; (follow links to similar papers)
50 pages, May 7, 2008
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